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Impact of Policy Uncertainty on Consumption and Saving Behavior: Evidence from a survey on consumers

Masayuki Morikawa

Discussion papers from Research Institute of Economy, Trade and Industry (RIETI)

Abstract: In Japan, uncertainty over the social security and tax system is termed as a source of stagnant household consumption at the aggregate level. This study presents empirical evidence on this issue by using original survey data of 10,000 individuals. The results indicate that individuals are highly uncertain over the future course of social security policies, and the impacts of such uncertainty on their life are perceived to be large. The policy uncertainty induces increased saving driven by a precautionary motive, and the effect is prominent for low-income individuals. These results suggest that improving long-term predictability in the social security and tax system may contribute toward stimulating household consumption.

New Economics Papers: this item is included in nep-dcm
Date: 2017-05
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